Chapter 10 pt 2 Flashcards
since at least the early 19th century, the american economy has experienced
alternating periods of expanding and contracting of economic activity
trend of business cycle graph
trough -> expansion -> peak -> recession -> trough
shortest recession on record
covid (2020) was 2 months
the federal government does not define when a recession starts or ends. instead it is the
media defining the recession as “two consecutive quarters of declining real GDP”
most economists defer to the judgement of
NBER
when a recession hits, workers reduce spending due to
expectations about their current and future incomes decreasing
but this reduction in spending doesn’t affect all goods equally. consumers mostly continue to buy nondurables
like food and clothing
but purchases of durable goods, ones that are expected to last three or more years, are
more likely to be hit hard by a recession
ex. furniture, appliances
the inflation rate measures
the change in the price level from one year to the next
during expansions
demand for products is high relative to supply, resulting in prices increasing (high inflation)
during recessions
demand for products is low relative to supply, resulting in prices increasing more slowly or even decreasing (low inflation or deflation)
inflation tends to rise toward the end of an expansion and
fall over the course of each recession
as firms see their sales start to fall in recession, they generally
reduce production and key off workers
unemployment often continues to rise after the end of each recession because
info logs, frictional lags, firms still nervous
great moderation
annual fluctuations in real GDP were typically greater before 1950 than after 1950
